VA loan
Encyclopedia
A VA loan is a mortgage
loan
in the United States
guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders.
The VA loan was designed to offer long-term financing to eligible American
veteran
s or their surviving spouse
s (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.
The VA loan allows veterans 103.15 percent financing without private mortgage insurance
or a 20 per cent second mortgage
and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.15% of the loan amount is paid to the VA; this fee may also be financed. In a purchase, veterans may borrow up to 103.15% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 90% of reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for an VA Interest Rate Reduction Refinance.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan
assuming the veteran has no monthly bills.
The maximum VA loan guarantee varies by county. As of 1 January 2011, the maximum VA loan amount with no down payment is usually $417,000, although this amount may rise to as much as $1,094,625 in certain specified "high-cost counties". VA also allows the seller to pay all of the veteran's closing costs as long as the costs do not exceed 6% of the sales price of the home.
in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans. Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 18 million VA home loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.
The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.
More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans.
Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.
Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.
In association with the VA's program, the Servicemembers' Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.
The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. If the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI
payment.**
Private mortgage insurance (PMI) guarantees conventional home mortgage loans - those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration
(FHA) and VA loan programs.
The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders.
The VA loan was designed to offer long-term financing to eligible American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
veteran
Veteran
A veteran is a person who has had long service or experience in a particular occupation or field; " A veteran of ..."...
s or their surviving spouse
Marriage
Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found...
s (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.
The VA loan allows veterans 103.15 percent financing without private mortgage insurance
Mortgage insurance
Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer...
or a 20 per cent second mortgage
Second mortgage
A second mortgage typically refers to a secured loan that is subordinate to another loan against the same property.In real estate, a property can have multiple loans or liens against it. The loan which is registered with county or city registry first is called the first mortgage or first position...
and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.15% of the loan amount is paid to the VA; this fee may also be financed. In a purchase, veterans may borrow up to 103.15% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 90% of reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for an VA Interest Rate Reduction Refinance.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan
Conforming loan
In the United States, a conforming loan is a mortgage loan that conforms to GSE guidelines.In general, any loan which does not meet guidelines is a non-conforming loan...
assuming the veteran has no monthly bills.
The maximum VA loan guarantee varies by county. As of 1 January 2011, the maximum VA loan amount with no down payment is usually $417,000, although this amount may rise to as much as $1,094,625 in certain specified "high-cost counties". VA also allows the seller to pay all of the veteran's closing costs as long as the costs do not exceed 6% of the sales price of the home.
History
The original Servicemen's Readjustment Act, passed by the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans. Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 18 million VA home loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.
The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.
More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans.
Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.
Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.
In association with the VA's program, the Servicemembers' Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.
Funding fees
A funding fee must be paid to VA unless the veteran is exempt from such a fee because he or she receives VA disability compensation. The fee may be paid in cash or included in the loan amount. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges, or hazard insurance may not be included in the loan. However, the seller may pay these on behalf of the VA borrower.Purchase and construction loans
Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 was 2.2 percent. This figure dropped to 2.15 percent on 10/1/04. If you have a service connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service connected disabilities, the funding fee is waived.| Type of Veteran | Down Payment | First Time Use | Subsequent Use for loans from 1/1/04 to 9/30/2011 |
|---|---|---|---|
| Regular Military | None 5%-9.99% 10% or more |
2.15% 1.50% 1.25% |
3.3%* 1.50% 1.25% |
| Reserves/National Guard | None 5%-9.99% 10% or more |
2.4% 1.75% 1.5% |
3.3%* 1.75% 1.5% |
The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. If the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI
PITI
In relation to a mortgage, PITI is an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes, and insurance. That is, PITI is the sum of the monthly loan service plus the monthly property tax payment, homeowners insurance premium, and, when applicable, mortgage...
payment.**
Cash-out refinancing loans
| Type of Veterans | Percentage for First Time Use | Percentage for Subsequent Use |
|---|---|---|
| Regular Military | 2.15% | 3.3%* |
| Reserves/National Guard | 2.4% | 3.3%* |
- The higher subsequent use fee does not apply to these types of loans if the veteran’s only
prior use of entitlement was for a manufactured home loan.
Other types of loans
| Type of Loan | Percentage for Either Type of Veteran Whether First Time or Subsequent Use |
|---|---|
| Interest Rate Reduction Refinancing Loans |
.50% |
| Manufactured Home Loans | 1.00% |
| Loan Assumptions | .50% |
Private mortgage insurance
Main article: Private mortgage insurancePrivate mortgage insurance (PMI) guarantees conventional home mortgage loans - those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration
FHA
FHA may mean:* Federal Housing Administration. See also FHA loan.* Federal Highway Administration* Civil Rights Act of 1968 -- In particular, Title VIII of the Act, also known as the Fair Housing Act* Forced Hot Air heating...
(FHA) and VA loan programs.
The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.